Biodiesel plans backfire as gov’t makes missteps

The government’s attempt to expand the use of environmentally-friendly fuels is faltering and companies producing biodiesel are going out of business as supply exceeds demand.

The local biodiesel industry is expected to take another hit as the volume of diesel imports looks like it will keep on rising.

Biodiesel is extracted from beans, rape flowers or used cooking oil that is usually made from corn or sunflowers.

The government first announced its plan to promote biodiesel use in 2007, but has since scaled back its original targets.

Until next year, the Ministry of Knowledge Economy requires that locally made diesel products contain at least 2 percent biodiesel in a bid to ease the nation’s heavy reliance on fossil fuels. According to the original plan, the rate should have been raised to 3 percent mix this year and 5 percent at a later date.

“The percentage may go up in 2014 as the government will review the plan then,” said Kim Jong-yeon, an official at the ministry’s renewable energy team.

“The plan to expand the use of biodiesel is crucial for the nation’s energy security, and also to produce fewer harmful carbon emissions.”

Last year, the government merely recommended that refineries include some biodiesel in their products.

Now many biodiesel producers, which are mostly small- or medium -sized companies, are getting anxious as they have made large facility investments to keep pace with the government’s original plan.

“Inevitably, supply is now exceeding demand,” said an industry insider who declined to be named. He said the government must shoulder some blame if companies go out of business just because they stuck to its guidelines.

Although there are 16 Korean companies registered as biodiesel manufacturers, only nine produce and supply such products to local refineries, with SK Innovation, GS Caltex, Hyundai Oilbank and S-Oil among their major customers. The number registered has fallen sharply from 23 in 2010.

Some of those that remain say they are considering switching back to other more lucrative businesses.

“The government is behind schedule in executing its policies and the industry needs it to keep its promises,” the industry source added.

But not everyone welcomes the idea of expanding the use of biodiesel. Local refineries are skeptical and say it may even be unnecessary from an environmental point of view.

“We don’t know if more biodiesel use will really contribute in cutting carbon emissions, or by how much,” said an official at GS Caltex. “Hence, we don’t agree with the rash expansion of such fuel use.”

Another reason may be the high cost. Like other renewable energy sources, biodiesel is expensive to produce. It costs about 200 won ($0.19) more per liter than diesel, even though prices vary depending on what source it is extracted from.

“Confusion is reigning right now as local refineries are opposed to raising the percentage of biodiesel in their regular diesel, while producers are all for it,” said Kim Hyung-seok, an official at the Ministry of Knowledge Economy’s petroleum products team.

Industry officials also point out that imported diesel should also be subject to the same “2 percent” mix rule. The government is due to do this at the start of 2013, but has said it may delay by one more year.

“We are talking to people in the industry to decide which way to go, as the government needs to boost the biodiesel industry while also making sure people have access to affordable fuel,” Kim said.

A decision is expected to be made by the end of this month.

To make small biodiesel producers more competitive, the government is seeking ways to boost the market.

“If we could export technology on extracting biodiesel from plants that we have developed independently, it would start making Korea’s investment in renewable energy more worthwhile,” said Kim.

By Lee Sun-min [summerlee@joongang.co.kr]